Citi maintains growth projection at 7.6% for FY12

Citi maintains growth projection at 7.6% for FY12

New Delhi: Maintaining its growth forecast for the Indian economy at 7.6% for 2011-12, financial services major Citigroup on Monday said higher farm output is expected to offset sluggishness in the industrial sector.

The 7.6% growth projection is in line with the Reserve Bank of India’s outlook for this fiscal.

In its second quarterly review of monetary policy last week, the apex bank had revised downwards its growth projection for the economy to 7.6% from the earlier estimate of 8% on account of global slowdown and high domestic rates of interest.

Citi also said that a deteriorating macro-environment, coupled with aggressive tightening of interest rates, would result in Gross Domestic Product (GDP) growth moderating further to 7.5% in 2012-13.

“While a low exports:GDP ratio, a domestically financed fiscal deficit, and a healthy banking system insulates India to some extent; in times of risk aversion, India immediately comes on the radar due to its twin deficits and reliance on external capital," it said while citing the reasons for the likely fall in economic growth next fiscal.

Citi also pointed to high inflation in the economy, along with fiscal constraints.

“In effect, if the current environment were to deteriorate sharply, India’s response could be less effective than in 2008," the report said.

The Indian economy had expanded by 8.5% in 2010-11. During the April-June period of the current fiscal, economic growth moderated to 7.7%, the lowest in last six quarters.

Growth in industrial production has been sluggish during the last few months. It stood at 4.1% in August. Experts have blamed the repeated rate hikes by the RBI for a slowdown in investments and industrial output.

The RBI has hiked its key policy rates 13 times since March 2010 to tame demand and curb inflation. Headline inflation has been above the 9% mark since December last year.

In its report, Citi said that interest rates “appear to be peaking", even though inflation remains elevated.